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News

In September 2017, the International Accounting Standards Board (IASB) released a survey summary by the External Reporting Board (XRB), which surveyed users of financial reports to find out whether they find Alternative Performance Measures (APMs) useful.

In the survey, 88.5% of respondents found APMs useful or sometimes useful and 68.7% of respondents stated that a company's performance measures should not be limited to GAAP measures.

Further, 56.3% of respondents said that they use both GAAP measures and APMs together as the primary indicators for assessing a company's performance.

On September 22, 2017, the International Accounting Standards Board (IASB) updated its work plan following its September 2017 meeting. Changes mostly relate to pronouncements having been published, comment letter deadlines having ended, and clarifications of upcoming dates of issuing pronouncements.

Below is an analysis of all changes made to the work plan since our last analysis on July 21, 2017.

Standard-setting projects

Conceptual Framework — the revised version of the Conceptual Framework is now expected in the first quarter of 2018 (was: fourth quarter of 2017)

Disclosure initiative — Materiality — an ED on the definition of materiality and a practice statement on materiality were issued on 14 September; accordingly, the project on the practice statement was removed from the work plan; the ED is open for comment until 15 January 2018

On September 22, 2017, the International Accounting Standards Board (IASB) released a four-minute video, as well as a four-page leaflet with information about the mechanisms of the work of the IFRS Interpretations Committee.

Both, the video and the leaflet, are very general in nature. They can be accessed through the press release on the IASB's website.

On September 21, 2017, the International Accounting Standards Board (IASB) announced the members of a Transition Resource Group (TRG) that will focus on potential implementation issues associated with their new insurance contracts standard.

The TRG members comprise of auditors and preparers. In addition, there are three observers to the group from international security regulators, insurance supervisors and actuarial organizations. Francesco Nagari, Deloitte, Partner, global IFRS insurance leader, is among the members.

On September 21, 2017, the British Columbia Securities Commission (BCSC) announced improvements to crowdfunding rules that will enable B.C.-based issuers to access investors in Alberta when conducting crowdfunding campaigns. The amendments also permit an increased investment, for some investors, of up to $5,000.

“With these amendments, B.C. is harmonizing the crowdfunding regime and providing start-up and early stage issuers with access to more potential investors and more investment dollars,” said Peter Brady, Executive Director of the BCSC.

Survey respondents who were involved in crowdfunding identified harmonization across jurisdictions as one of their biggest concerns. The new amendments take steps to resolve that issue by allowing an interface between the B.C. and Alberta crowdfunding rules. Respondents also recommended increasing the investment amounts allowed under the current crowdfunding rules. The new amendments raise the investment limit from $1,500 to $5,000, if the investor has obtained advice from a registered dealer that the investment is suitable for them.

On September 19, 2017, the International Accounting Standards Board (IASB) released a 30 minute webcast that covers the accounting for reinsurance contracts held in applying IFRS 17 "Insurance Contracts".

This webcast is part of a webcast series that the International Accounting Standards Board is providing to support the implementation of IFRS 17.

On September 18, 2017, at the "Shaping the future of corporate reporting" event held in Brussels, Accountancy Europe (formerly FEE) launched two publications: a follow-up report on the 2015 paper that put forward the idea of "CORE & MORE" and a call for action to enhance the coordination of non-financial information initiatives and frameworks.

The Core & More concept introduced in 2015 aims to present corporate reporting in a smarter way, organizing financial and non-financial information based on the interests of users. Information relevant for a wide range of stakeholders would be in the Core report, and supplementary details for a more limited audience would form the More reports. The paper develops the concept further and provides ideas on what information could be presented in each of the pillars. It also explores how technology might support the Core & More concept and addresses the relationship between Core & More and integrated reporting.

The call for action notes that "the overwhelming number of existing disconnected non-financial information reporting frameworks complicates coherent, consistent, and comparable wider corporate reporting, and steadily increases the reporting burden for companies". Accountancy Europa calls on the different standard-setting bodies and initiatives to coordinate their efforts to streamline existing reporting frameworks addressing similar pieces of non-financial information. The organization believes that the final step in this development should aim at developing a single global framework for non-financial information reporting. (At the very same event IASB Chairman Hans Hoogervorst noted in a speech that the IASB could not and would not take the decisive leadership role Accountancy Europe hints at in the call for action).

On September 18, 2017, the International Accounting Standards Board (IASB) released a speech delivered at Accountancy Europe’s event "Shaping the future of corporate reporting" held in Brussels. In his speech, IASB Chairman Hans Hoogervorst discussed the relevance of financial reporting in a world where companies provide more and more non-financial information and are seeking a wider audience than investors alone.

Mr. Hoogervorst's main message at the beginning of his speech was: "Keep calm and carry on". He explained that he was not at all concerned that the relevance of financial reporting is under threat. He noted that financial statements are primarily backward looking and, therefore, always provide an important reality check. And he also noted that as more information becomes available, the more need there is for comparability, standardization and quality control.

Yet Mr. Hoogervorst also conceded that times are changing and everybody needs to adapt - including the IASB. He stressed the IASB's current effort at better communication in financial reporting. He noted a few projects and initiatives that form part of the effort and he also explained that the IASB may need to give preparers more guidance on how to provide context to their financial statements.

Also, Mr. Hoogervorst looked at environmental, social and governance (ESG) reporting and the question of whether the IASB should become active in that field. He noted that audience for sustainability reporting is broader than that of financial reporting and that much of sustainability reporting is primarily focused on the external effects of the performance of a company. Mr. Hoogervorst said that he believed that the IASB does not have the expertise to become the standard-setter in this field and that widening the audience and scope of the Board's work would most likely lead to loss of focus and identity.

However, Mr. Hoogervorst did not just leave it at that. He also followed up on the question who should take responsibility for harmonization of ESG requirements and try to prevent overload. He argued that since so much of ESG reporting is closely intertwined with public policy goals, public authorities would be best equipped to pursue harmonization.

On September 14, 2017, the International Accounting Standards Board (IASB) issued Practice Statement (PS) 2 "Making Materiality Judgements". The PS aims at assisting management in presenting financial information about the entity that is useful to existing and potential investors, lenders and other creditors in making decisions about providing resources to the entity.

Four-step process

The Practice Statement notes that an entity may find it helpful to follow a systematic process in making materiality judgements and offers an example of such a process.

Step 1. The entity identifies information that has the potential to be material. In doing so it considers the IFRS requirements applicable to its transactions, other events and conditions and its primary users’ common information needs.

Step 2. The entity then assesses whether the information identified in Step 1 is material. In making this assessment, the entity needs to consider quantitative (size) and qualitative (nature) factors.

Step 3. In a next step, the entity organises the information within the draft financial statements in a manner that supports clear and concise communication.

Step 4. In the most important step, the entity then steps back and assesses the information provided in the draft financial statements as a whole. It needs to consider whether the information is material both individually and in combination with other information. This final assessment may lead to adding additional information or removing information that is now considered immaterial, aggregating, disaggregating or reorganising information or even to begin the process again from Step 2.

Status and effective date

The Practice Statement is not an IFRS. Consequently, entities applying IFRSs are not required to comply with the Practice Statement. However, it should be noted that materiality is a pervasive principle in IFRSs. The Practice Statement does not have an effective date, it can be applied with immediate effect.

On September 14, 2017, the International Accounting Standards Board (IASB) published an exposure draft "Definition of Material (Proposed amendments to IAS 1 and IAS 8)" to clarify the definition of ‘material’ and to align the definition used in the Conceptual Framework and the standards themselves. Comments are requested by January 15, 2018.

Suggested changes and reasoning behind the changes

The changes proposed in ED/2017/6 Definition of Material (Proposed amendments to IAS 1 and IAS 8) all relate to a revised definition of 'material' which is quoted below from the ED:

Information is material if omitting, misstating or obscuring it could reasonably be expected to influence decisions that the primary users of a specific reporting entity’s general purpose financial statements make on the basis of those financial statements.

Three new aspects of the proposed definition should especially be noted:

Obscuring. The existing definition only focused on omitting or misstating information, however, the Board concluded that obscuring material information with information that can be omitted can have a similar effect. Although the term obscuring is new in the definition, it was already part of IAS 1 (IAS 1.30A).

Could reasonably be expected to influence. The existing definition referred to 'could influence' which the Board felt might be understood as requiring too much information as almost anything ‘could’ influence the decisions of some users even if the possibility is remote.

Primary users. The existing definition referred only to 'users' which again the Board feared might be understood too broadly as requiring to consider all possible users of financial statements when deciding what information to disclose.

In addition, the ED proposes some clarifications to the explanation accompanying the definition of material. These proposals include:

Relocating some information that explains rather than defines material from the definition into the explanatory paragraphs accompanying the definition;

adding a description of the characteristics of the primary users of financial statements;

noting that the consideration of the characteristics of users must be judged in the entity’s circumstances;

explaining that even well-informed and diligent users may need to seek the aid of an adviser from time to time; and

highlighting that the materiality of information is assessed either individually or in combination with other information.

Effective date

The exposure draft does not contain a proposed effective date which the IASB intends to decide on after the exposure. However, the Board has already concluded that an entity should apply the amendments prospectively and that earlier application will be permitted.